11/11/2013
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Loan Fund and Credit Union Collaborations
Seth Julyan, Opportunity Finance Network
Melanie Stern, National Federation of Community Development Credit Unions
November, 11 2013
Go-To-Webinar
11/11/2013
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CDFI Fund’s Capacity Building Initiative
• The Capacity Building Initiative will greatly expand technical assistance and training opportunities for Community Development Financial Institutions (CDFIs) nationwide and significantly boost the ability of CDFIs to deliver financial products and services to underserved communities.
• Industry-wide training will target key issues currently affecting CDFIs and the communities they serve.
Scaling Up Microfinance Task Order
Expand the capacity of CDFIs that specialize in microfinance through a program focused on decreasing
costs, exploring new products, building human capital, and improving business models in order to attract investments.
•3 Trainings
•Technical Assistance
•Virtual Resource Bank
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Presenter
Seth Julyan
VP, Membership
Opportunity Finance Network
Presenter
Melanie Stern
Senior Program Director
National Federation of Community Development Credit Unions
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Loan Fund and Credit Union Collaborations
Seth Julyan, Opportunity Finance Network
Melanie Stern, National Federation of Community Development Credit Unions
November, 11 2013
Agenda
• Intros
• Loan Fund and Credit Union 101
• Benefits of Collaboration
• Examples of Collaboration
• Hybrid Organization
• Questions
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OFN Overview
• Mission
– OFN’s mission through 2025 is to lead CDFIs and their partners to ensure that low-income, low-wealth, and other disadvantaged people and communities have access to affordable, responsible financial products and services.
• Core Purpose
– OFN exists to align capital with social, economic, and political justice.
• Vision
– When capital and justice are aligned, all people will have the resources and opportunities to act in the best interests of their communities, themselves, and future generations.
The National Federation of Community
Development Credit Unions
2014 is our 40th ANNIVERSARY
For 40 years the federation has been helping low- and moderate-income people and communities achieve financial independence through credit unions.
Promoting financial inclusion by organizing, supporting, and investing in these community development credit unions (CDCUs), which specialize in serving populations with limited access to affordable financial services
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Innovating Investing
The Federation’s Community Development Investment Program invests in member CDCUs to strengthen their financial position and expand their impact on the low-income communities they serve.
The Federation develops and delivers innovative products focused on low and moderate-income consumers, fosters strategic partnerships, identifies best practices for serving underserved communities, and provides education and training to CDCU leaders.
Advocating Expertise
The Federation builds CDCUs’ capacity to serve low-income communities through technical assistance, webinars, practical tools and guides, and customized consulting services to support their growth and service to low-income communities.
The Federation advocates with government agencies, regulators and lawmakers for policies and programs that promote the safety and soundness of credit unions while allowing them to grow and promote the financial inclusion of low-income communities.
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Are you Collaborating with a Credit Union?
Are you Collaborating with a Loan Fund?
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What we heard…
Lack of education about each CDFI type
Inability to find CDFIs to form collaborations
A strong desire to create collaborations
How to create meaningful collaborations
Loan Fund and Credit Union Overview
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What is a Loan Fund?
• Non-regulated institution
• Non-depository institution
• Tax status
• Provide financing to many different sectors
• Primary mission of community development and strive to have a positive impact on low income, low-wealth and other disadvantaged people and communities
Loan Funds– Where Do Loan Funds Get Their Capital?
Source % of Borrowed Funds
Banks/Thrifts/Credit Unions 30.7%
Federal Government 20.9%
Foundations 12.9%
Other 7.8%
State/Local Government 7.7%
Corporations 5.4%
Religious Institutions 4.9%
Individuals 3.6%
Non-Depository Financial Institutions 3.6%
National Intermediary 2.5%
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Credit Unions – Capital Breakout
Type % of Capital
Member Shares 93%
Non-member Deposits 1%
Secondary Capital 6%
Loan Fund Ratios
Type Ratio (%)
Borrowed Capital Cost (%) 2.6%
Borrowed Capital Term 103 Months
Self Sufficiency Ratio 63%
Net Asset Ratio 43%
Client Demographics
Low Income 71%
Minority 61%
Female 48%
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Financing Sectors – Loan Funds vs. Credit Unions
14%
7%
20%
1%
38%
13%
2%
3%
3%
7%
3%
2%
26%
1%
60%
0%
1%
1%
0% 10% 20% 30% 40% 50% 60% 70%
Business
Commercial Real Estate
Community Facilities
Consumer
Housing-to-Organizations
Housing-to-Individuals
Intermediary
Microenterprise
Other
Credit Unions
Loan Funds
Credit Union Basics
• CUs can offer a continuum of products and services to meet the diverse needs of individuals and businesses
Owners Transactors Savers Borrowers
The Financial Security Path
Investment & Asset
Management Products
Transaction
Services
Savings Accounts
Affordable, Convenient
Loans
Continuum of Products & Services
Credit Unions
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About Credit Unions
More About Credit Unions
• Credit unions are not-for-profit financial cooperatives serving groups of members who have something in common such as employment at a company, membership in an association, or residence in a particular geographic area.
• A credit union that may serve anyone who lives or works within a particular geographic area is called a community credit union.
• A credit union that serves groups of employees or associations is typically called a SEG-based (for select employee group) or a sponsor-based credit union.
We Don’t Say No We say When “Vermont’s only regulated financial institution dedicated to serving low-wealth individuals”
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Credit Unions
•More than 92 million U.S. consumers are member-owners of, and receive all or part of their financial services from the nation's 7,000 credit unions. •Credit unions are democratically owned and controlled institutions •Credit unions have no outside stockholders so, after reserves are set aside, earnings are returned to members •Community Development Credit Unions are mission-driven institutions serving low- and moderate-income individuals and communities •Majority of CDCUs are CDFIs •Credit Unions represent approximately 25% of CDFIs but are the largest group by asset size
Benefits of Collaboration
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Partnerships Matter Because they Can Build Economies of Scale
The Goal
Build an efficient and effective program for communities that can be financially sustainable while meeting the social mission of the institutions
Response:
Find national and local partners that bring different but complementary expertise and funding to the community
1. Offer appropriate/impactful financial products
2. Work with community partners to provide more and better access to financial products
Some Important Reasons to Partner with
Existing Loan Funds
• Providing liquidity to fund business loans or mortgages
• Cross referrals for small business loans and mortgages
• Providing consumer loans, credit builder loans and other loans the loan fund may not make
• Providing additional counseling or other basic banking services already in the credit unions list of products and services
• Partnering with “specialty loan funds” –rural, green, job creating
Home Headquarters
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To CUs • Some CDFI programs do not work for regulated
institutions (NMTC) • Member Business Loans are heavily scrutinized by
examiners and not all CUs have the expertise
To Loan Funds • Loan size constraints • Liquidity Issues • Cannot offer a full range of products and services
Additional Reasons Partnerships Matter
Loan Fund/CU Partnership Challenges
• Field of Membership - Can the CU accommodate referrals
• Risk Tolerance Varies - CU are heavily regulated and risk their credit rating if delinquencies and charge-offs are too high
• Regulatory Requirements - Cannot participate loans with uninsured entities
• Which May Lead to a Decision to Organize a Credit Union or create a non-profit affiliate
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Examples of Collaboration
Collaboration Examples
• The Support Center
– North Carolina Loan Fund
• Loan Guarantee Program for NC Credit Unions
– Provide deposit to participating credit unions
– Eight credit unions participated and two remain active
• Provide Business Lending Underwriting
– Beginning to offer underwriting services to both loan funds and credit unions. Currently, one credit union is participating
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Collaboration Examples
• Brooklyn Cooperate Federal Credit Union and BOC Capital
• Business Loan Participations
• Loan Referrals
• Depository Referrals
Hybrid Organizations
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Hybrid Organizations
• Self Help Ventures Fund, Self Help Credit Union, Self Help Federal Credit Union
• HOPE Enterprises, HOPE Credit Union
• ASI Federal Credit Union, ASII
• Lakota Funds, Lakota Federal Credit Union
HOPE Overview
• Hope Enterprise Corporation
• 501(c)3 Loan Fund
• Started in 1994 by Foundation for the Mid South
• Hope Credit Union
• Started at Anderson United Methodist Church
• Founder was CEO of ECD
• 2002 – Hope Enterprise became sponsor of Hope CU
• CU needed stronger systems / management
• Loan Fund needed access to capital
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HOPE Structure • 2 organizations (plus subsidiaries)
• 2 boards
• Minimal overlap
• CEO on both boards
• Shared committees – executive, audit, credit, investment
• 2 sets of books
• 1 staff
• Employed by Hope Enterprise Corporation
• Allocation of time / expenses
• Organized by function / line of business
For Loan Fund – Why a Regulated Depository?
• Initial Strategy
• Loan Capital
• Leverage 501(c)3 assets
• Expanded Strategy - Mission Fit
• Need to retain benefit of other work at household level
• Not just loan products
• Deposits, education, access
• Most unbanked / underbanked region in the country
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For Credit Union – Why a Loan Fund?
• Access different types of funds
• Grants
• Low cost debt
• Work beyond credit union constraints
• Shared costs for community development work
Benefits
• Expanded way thinking about Mission
• Expanded set of tools
• Credit Union vendors / products / services
• Discipline of regulations
• Growth opportunities
• Credit Union
• $2MM to $170MM
• 1,500 members to 27,000+
• Loan Fund - $25MM to $105MM
• Policy work is grounded
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Challenges
• Complexity
• Costs / Coordination
• CU Regs
• Raising capital – secondary capital
• Lending restrictions – C&D, portfolio limits
• Compliance / Fraud / Training
• Retail Demands
• 24 hour access - No downtime is acceptable
• Members / Customers
• Managing Expectations & Relationships
• Internal – staff / board / supporters
• External – examiners / funders / investors
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ASII
• A Shared Initiative, Inc. is a 501(c)(3) nonprofit established by ASI Federal Credit Union post-Katrina to expand its community development efforts and fulfill its vision of eliminating poverty, providing access to economic empowerment and financial mobility to the communities we serve.
• Effectively administer ASIFCU’s community development initiatives and raise grant funds
• ASII began as a housing developer and in February 2010 established a small business and micro-entrepreneurship loan fund to meet the increasing demand for capital among low-income and minority clients-Can make different types of loans with a different risk profile
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OFN and the Federation
Partnering to Help you Partner
QUESTIONS?
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Contact Information
• Seth Julyan, Opportunity Finance Network
• Melanie Stern, Federation
Contact Information: Examples of Collaboration
• Robin Romano, Marisol FCU
• Christina Suave, Cooperative Federal
• Hema Banangada, ASI Federal Credit Union
• Samira Rajan, Brooklyn Cooperative Federal Credit Union
• Nancy Carin, BOC Capital
• Alan Branson, Hope Enterprises
• Roberta McCullough, The Support Center
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Scaling Up Microfinance Fall Webinar Series
• New Product Development – Ashvin Prakash and Brenton Peck, CFSI
• Underwriting to Scale – Leslie Hoffman and Luz Gomez, FIELD at the Aspen Institute
• Customer Acquisition-Reaching and Retaining Your Customers – Ginger McNally, OFN and Maria Semple, The Prospect Finder
• Loan Fund and Credit Union Collaborations – Seth Julyan, OFN and Melanie Stern, The Federation
• The Role of Market Research in Scaling Microfinance – Tammy Halevy, AEO
Oct 24
Nov1
Nov8
Nov11
Nov21
CDFI Fund’s Virtual Resource Bank
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OFN Contact Information
• Pam Porter Executive Vice President Strategic Consulting Opportunity Finance Network [email protected] 215-320-4303
• Alexandra Jaskula Associate Strategic Consulting Opportunity Finance Network [email protected] 215-320-4325
Loan Fund and Credit Union Collaborations
Seth Julyan, Opportunity Finance Network
Melanie Stern, National Federation of Community Development Credit Unions
November, 11 2013